Help a spouse or dependent: Parents can make regular deposits into a child’s bank account using an AFT, and spouses may use it to move money between their accounts.Account holders may use an AFT to contribute to these or another savings account regularly. Saving and budgeting: Some banks offer Vacation Club or Christmas Club savings accounts as tools for customers to save.Another important aspect to keep in mind is that your surplus cash may have a better use for your Financial Goals like Retirement, Children’s Education etc. If you like to avoid Auto-Sweeps, one good option is to look at Yes Bank Savings Account. Also, interest earned on FD is subject to TDS by Bank if the amount exceeds Rs. While it is a good idea to leverage the excess cash and earn better interest, please keep in mind that such short term FDs are tax inefficient. If you think you can predict your cash flow patterns reasonably well, it is better to invest the surplus cash in better-manageable investment avenues with no penalty for fore-closure. However, it is important not to over-do this facility. It is also suited for people having only few transactions in their Savings Bank account. Should you opt for the Auto-Sweep facility? Auto-Sweep is best suited for busy professionals who do not have time to monitor their Savings Bank account, helping them earn higher interest on idle cash. Although this facility is generally free of charge, some banks apply service charges on transactions. Some banks also calculate simple interest on FDs created under this facility, as against compound interest in traditional FDs. If there is a pre-mature withdrawal when you need money, it will attract a penalty on the interest rate offered. Additionally, some banks may specify a minimum period for FDs. You may not be able to efficiently track the movement of your funds if you are too frequent in your sweeps. While there are certain benefits of the Auto-Sweep facility, it is not bereft of drawbacks. This facility is especially useful for the salaried class, who may not be willing to lock-in large amount in FD, but at the same time want to earn high interest on idle money in the Savings Bank account. It is suitable if you are not able to exactly time the need for money. Advantages and Drawbacks: This facility offers the double benefits of liquidity and flexibility of a Savings Bank account and high interest rates of a FD account. In future, if you deposit more money into your account, the excess above the threshold limit will again be swept into a FD. Your FD which is now reduced to Rs.10,000, will continue to earn FD interest. If it is a zero balance account, only Rs.5,000 will be reversed from the FD. If you wish to withdraw Rs.15,000 after 3 months from your Savings Bank account, the shortfall amount of Rs.10,000 (withdrawal amount of Rs.15,000+ minimum balance of Rs.5,000- threshold limit of Rs.10,000) will be auto-reversed from your FD account. The amount in your Savings Bank account (Rs.10,000) will earn Savings Bank rate of interest. The excess Rs.20,000 is transferred automatically by the bank to a new FD account. Suppose you open an Auto-Sweep Savings Bank account in ABC Bank with – Minimum balance: Rs.5,000 Initial deposit: Rs.30,000 Threshold limit defined: Rs.10,000. Whenever you need money in excess of the pre-defined limit, the money in your FD is swept back into your Savings Bank account, which is called “sweep-out” or “reverse-sweep”. The amount in the Savings Bank account earns Savings Bank interest. This is called a “sweep-in” and the transferred amount earns normal FD interest. At any point in time, when your account has a balance higher than this limit, the surplus is transferred to a FD account automatically, enabled by technology. Working of an Auto-Sweep Account: In an Auto-Sweep account, you define the maximum amount you would want to hold in your Savings Bank account, which is the threshold limit. Your Savings Bank account is linked to a FD, and any amount lying in the Savings Bank account above a pre-defined threshold limit is automatically transferred to the FD account, helping you earn higher interest compared to the interest earned in Savings Bank account. This gives the twin advantages of both a Savings Bank account and a fixed deposit (FD) account. Meaning of Auto-Sweep Facility “Auto Sweep” facility is offered by many leading banks and is called by different names in different banks. This is where an Auto-Sweep facility in your Savings Bank account will help you. The extra cash lies idle in your bank account, earning a meager Savings Bank (SB) interest, just because you may be too busy to invest it or do not give much thought to it. Most of us postpone investing our cash inflows in productive investment opportunities.
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